It’s been a very slow start to the week in FX today with majors barely tracing out 20 pip ranges in subdued trade.

After the torrent of newsflow last week, the currency appeared to be content to remain at a standstill as traders await the final event risk of the year with this week’s FOMC meeting.

Over the weekend the EU rejected any additional compromise on the Irish backstop issue essentially refusing to provide UK with any timeline for withdrawal of EU rules. With most European institutions now headed for the annual Christmas break, negotiations will be on hold until next January and with March deadline fast approaching the pressure on policymakers is sure to rise.

Given the limited time, there appear to be only three scenarios – 1. UK Parliament approves May’s deal, 2. The government gives up and calls a 2nd referendum 3. The situation devolves into a no-deal hard Brexit. Although the markets continue to believe in some sort of a 11th-hour solution the risks of a hard Brexit have increased markedly and if it looks like the UK Parliament will reject whatever deal May puts in front of the lawmakers, the volatility in cable is sure to spike.

For now, however, the early London flows show a bit of short covering from last week’ selloff and that short covering could intensify as the week proceeds if the Fed signals that it may be ready to pause after the expected rate hike.

The current situation in G-7 shows no clear winner. The woes in Europe caused primarily by political factors are well known, but US economy shows signs of political risk as well with Trump threatening a government shutdown at a time when the US printed its biggest monthly deficit on record. Investors on this side of the pond are concerned and as attention shifts to the US this week, the dollar could unwind its gains from last week.